Thursday, December 1, 2011

Interplay of Law and Economics in WTO case law

A brilliant paper by Gregory Shaffer and Joel Trachtman titled "Interpretation and Institutional Choice at WTO" brings to the fore many aspects of judicial interpretation in the Dispute Settlement mechanism of the WTO by analysing case law of the Dispute Settlement Body. Chief amongst them is the use of the opinion of economic experts in judicial interpretation of WTO. The interplay of economics and law, especially international trade law is well established and undisputed. However what relationship the interplay must take is often debated.

Reacting to the relationship the paper notes,

" WTO law broadly, and adjudication in particular, maintains a complex relationship with neo-classical economics. Some of the concepts used in WTO law, such as “market,” “like products,” “subsidization,” “injury,” and “price suppression,” have cognates in economics. However, these cognates may, at times, be false if the economic concept is not what was intended by the treaty language. Applying these terms thus raises delicate issues of interpretation. To the extent that it is accepted that the intent was to ascribe the meaning to a particular term as used in economics, and economists are requested to provide their analyses in this light, this choice again involves a partial delegation of decision-making to technical experts."

Referring to the use of expert economists opinion in interpreting WTO agremments the paper notes,

"Parties to WTO disputes increasingly turn to economists for support in making the factual case for a WTO violation, and WTO panels increasingly cite the economists’ views in support of their decisions. For example, in cases assessing the existence of tax discrimination between competitive products, parties have supplied econometric data regarding the cross-elasticity of demand of such products, which panels have cited in support of their findings.Similarly, in the United States–Cotton case, the Appellate Body was required to review, among other matters, a finding by the Panel that U.S. cotton subsidies had caused “significant price suppression.” The interpretation and application of the requirement that the U.S. subsidy “cause” “significant price suppression” required reliance on at least some economic analysis, as well as legal analysis. The question of whether “significant price suppression” exists is partially one of legal interpretation to determine the applicable measure that is challenged, as well as the meaning of the treaty provision, and partially one of assessment of facts regarding suppression of world prices, for which economic data is needed. The question of causation also requires both a legal standard of causation and the use of economic theory and methodology in the factual analysis. The panel did not engage in its own economic analysis in this case, nor did it state that it fully relied on economic analyses performed by the complainant’s experts, yet it did cite their economic evidence in support of its findings."

Stressing on the importance of the use of the principles of economics and analysis ina rriving at a judicial interpretation, the paper notes,

"Economists have sometimes assessed how WTO texts incorporate economic concepts that are congruent with economic welfare analysis.Where such congruence exists, greater precision in the application of these concepts would improve economic welfare. The use of experts also could be viewed as enhancing overall political welfare if the economic concepts are consistently applied without favoring some Members over others. It can be argued that where the treaty framers expressed rights and obligations in terms of economic concepts, they implicitly called for an accurate use of those economic concepts. From the perspective of participation, since panels may take into account expert opinion either expressly or less transparently, the creation of expert review groups could increase the transparency of this process."

However, there was a word of caution in the end,

"Yet, expertise is no guarantee against bias or ideology, and affected stakeholders will be concerned, in particular, if questions raising value judgments (such as economic development policy) are being delegated to unaccountable economic experts who help to justify in technocratic terms judicial decisions with political implications. There are, in short, important limits to the usefulness of expert methods. In particular, when diverse values must be balanced, economics cannot assist in the commensuration among them. Panels may use experts to justify their decisions from a technical perspective, but such deference to technical judgment will not necessarily avoid legitimacy challenges where particular social priorities are at stake. Stakeholders will raise questions about the participation characteristics or the legitimacy of assigning even partial decision-making to expert groups of economists and scientists. Experts’ assessments of the underlying facts can nonetheless assist panels in making the ultimate institutional choices at stake, such as whether to defer to a national measure, engage in judicial balancing, turn to process-based review, or issue a clear bright-line rule against categories of measures, thus leaving ultimate outcomes to market processes."

The paper also deals with various other institutional  and interpretative choices that are made by the Dispute Settlement bodies including delegation to other international organisations (like IMF), recognition of other aspects of international law, delegations to market practice, deference to member states to name a few.

The trend of this complex interplay of economic principles and the role they have in interpretation of international treaty texts is well demonstrated in the recent COOL report wherein the Panel has extensively utilised both the evidences from the cattle industry as well as Parties submission of reports of Economists on complex econometric models on segregation costs in the industry.

More to this heady mix!

No comments: